Understanding Non-Profit Organizations

Legally constituted organizations with the objective to engage in or support non-commercial/profit activities for public or private interest, are known as non-profit organizations. While non-profit organizations can have members, it is by no means a requirement, and many do not. A non-profit organization also has the option of being an association of members or a trust. Control of the organization can be by a board of directors, governors or trustees, elected by it's members. Although non-profit organizations do not pay dividends or issue stock, they still have the ability to have employees and to compensate directors (within reason).

Formation of non-profit organizations is done by incorporating in the state where the organization expects to do business. This act of incorporating enables the organization to fall under the law of corporations, allowing it to create contracts, dealings of a business, and own property in the same way corporations that make profit can do.

Non-profit organizations have the ability to earn profit in the form of "surplus". These profits are not owned by or distributed to individuals or stake-holders; instead they get retained for the organization's provision of programs and services in the future. Some of the organizations exempt from reporting annual financial activity to the IRS include those falling into the categories of charitable, educational, literacy, prevention of cruelty to animals & children, religious and scientific.